Multiple Choice
In a competitive market, a car dealer who does not have enough customers for a supply of new cars faces which of the following situations?
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3. The Market Forces of Supply and Demand
Competitive Markets
Multiple Choice
A key characteristic of a competitive market is that:
A
there are many buyers and sellers, each with negligible influence on market price
B
products are highly differentiated among sellers
C
entry into the market is heavily restricted by government regulation
D
firms can easily set prices above the market equilibrium
Verified step by step guidance1
Understand the definition of a competitive market: it is a market structure characterized by many buyers and sellers, where no single participant can influence the market price significantly.
Recall that in a perfectly competitive market, products are typically homogeneous or very similar, not highly differentiated, which means consumers see them as perfect substitutes.
Recognize that entry and exit in a competitive market are usually free or have minimal barriers, allowing firms to enter or leave the market easily based on profitability.
Note that firms in a competitive market are price takers, meaning they accept the market price as given and cannot set prices above the equilibrium without losing customers.
Compare each option with these characteristics to identify the correct statement that matches the key features of a competitive market.
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